Unfiled FBARs, Streamlined IRS Voluntary Disclosures for Foreign Bank Accounts

FBARs and voluntary disclosures of foreign accounts and income are an area of notable experience for Pasadena tax attorney Daniel W. Layton. Mr. Layton has handled FBAR and foreign reporting cases at all stages, including streamlined disclosures, audits, appeals, and federal court litigation. As a former D.O.J. and IRS trial attorney, he uses his experience and insights to help his clients navigate this complex and evolving area of law.

When you want to make sure that a streamlined disclosure is appropriate for you and, if you are eligible for those procedures, the streamlined certification, FBARs, and returns are competently prepared and submitted, having a sophisticated and experienced tax attorney is critical. During his time as an IRS attorney, Daniel W. Layton had responsibility for reviewing the IRS’s proposed assessments of willful and non-willful penalties for unfiled or late-filed FBARs. He understands how the Internal Revenue Service auditors and investigators view failure to report foreign accounts and the decision-making process that goes into the imposition of substantial penalties. As former federal prosecutor, Mr. Layton also has the experience to advise clients regarding the difference between willful and non-willful conduct or the line between criminal and purely civil conduct.

Voluntary FBAR Disclosures Under Streamlined Domestic Offshore Procedures

Limiting their penalty risk to a single 5% penalty on the highest balance of their accounts on December 31 of the last 6 years, when U.S. taxpayer qualifies, the Streamlined Domestic Offshore Procedures are an attractive way for an individual who did not willfully fail to file FBARs to comply for the first time with filing obligations.

Although some cases are more complicated, generally, taxpayers who qualify for this relief must file correct amended returns going back 3 years reporting all domestic and foreign income and reporting their foreign assets on related schedules to the returns (especially Form 8938) and must file the last 6 delinquent FBARs (reports of foreign bank accounts) with FinCen reporting their interests in offshore and foreign bank accounts. The “miscellaneous” offshore penalty, additional tax on the amended returns, and interest on the theretofore unpaid tax must be paid in full with the submission. The central document which must be provided with the submission is a the Form 14654, Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures.

The program has many participation and eligibility requirements, for which the guidance is on the IRS's website here and here. In addition, there is an IRS webinar for completing a streamlined disclosure which can be watched here. Procedures for non-resident taxpayers can be found here. However, individuals should be very careful about proceeding without the counsel of an experienced tax professional when attempting first-time compliance and, especially, when submitting the streamlined certification form which requires attesting to detailed facts surrounding the foreign accounts, failure to file FBARs, and failure to pay taxes. As stated in the IRS's disclosure form:

You must provide specific facts on this form or on a signed attachment explaining your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Any submission that does not contain a narrative statement of facts will be considered incomplete and will not qualify for the streamlined penalty relief.

The disclosure also requires the individual(s) certify to the “non-willfulness” of the failure to report the foreign sourced income and the offshore accounts. However, those submitting this form should be aware that the IRS will not simply take taxpayers’ word that they were not “willful” or that their detailed narrative is the whole story. The government is carefully scrutinizing the submissions and other information in their possession inconsistencies that strike against non-willful or inadvertent failure to report foreign income and accounts. Most individuals and tax professionals do not have meaningful experience evaluating what “willful” conduct legally means and how their conduct, even if inadvertent, may look from a government reviewer's or investigator's point of view.

For experienced legal assistance on a matter involving disclosure of foreign accounts, you can contact Pasadena tax attorney Daniel W. Layton, Esq., for a consultation at (626) 790-8602.